How a total n00b mined $700 in bitcoins

We take a Butterfly Labs Bitcoin miner, plug it in, and make it (virtually) rain.

This is the second in a two-part series exploring Butterfly Labs and its lineup of dedicated Bitcoin-mining hardware. In part one, we looked at the company and the experiences customers have had with it. In part two, we share our experiences running a Bitcoin miner for a couple weeks.

Toiling in the Bitcoin mines

There is a whirring, whining presence in my dining room. I notice it every time I walk through. Every day, it sucks down about one full kilowatt-hour of electricity. In a year, it will consume almost $100 worth of juice—and that's on top of the $274 it costs to buy the box in the first place. Oh, and it's hot, too. If I moved it into my office and could stand the noise, I could keep a cup of coffee comfortably warm on top of the thing. Why on earth would anyone want such a disagreeable little machine in their home?

The short answer: every day, that machine magically generates something like $20 in bitcoins.

The BFL miner: A video intro

Allow me to introduce you to the Butterfly Labs 5GH/s "Jalapeño" Bitcoin miner.

A newbie and his miner

Ars Senior Business Editor Cyrus Farivar tapped me on the shoulder a few weeks back with a proposition. "I've got a Butterfly Labs Bitcoin mining box," he explained. "There aren't that many in the wild right now. I'm working on a story about the company, but I'm about to go on vacation. Do you want to see if you can get the thing working while I'm out?"

I was intrigued. Bitcoin? That's the electronic currency that's quickly rocketed from lame nerd project to ludicrously valuable hot topic, right? I didn't know a lot about the world of Bitcoin other than the fact that "mining" them involved people building custom PCs with tons of video cards to handle the math. I certainly didn't know how to "mine" bitcoins myself or what to do with the things once I had them. I just knew that people eventually try to trade them in for cash somehow (but how to do that was also a total mystery).

And yet here was the opportunity to take a piece of hardware I'd never heard of and see if I could use it to magically create some money out of nowhere. I told Cyrus to send me the Butterfly Labs miner. As he trekked off to Peru for his vacation, I settled in with the little black box.

Butterfly Labs is a company that has drawn a fair amount of controversy for what the Bitcoin community at large perceives as a string of broken promises. The company sells ASIC-based Bitcoin miners—machines that are built around customized chips that do nothing except compute SHA-256 hashes very quickly. Its smallest miner (the one I had to get working) is codenamed "Jalapeño" and computes a bit over five billion hashes per second (or 5GH/s). The problem is that Butterfly Labs started selling the machines long before it actually had a product to sell. It began taking paid-in-full preorders back in mid-2012, and thousands of customers opened their wallets for Bitcoin miners ranging from the small 5GH/s miner at $274 all the way up to the large 500Gh/s miner, which costs $22,484.

Butterfly Labs promised certain performance targets to customers—it initially felt confident that its application-specific integrated circuit (ASIC) designs would deliver one billion hashes per second for every 1.1 watt of power consumed. This proved extremely optimistic. Hardware delivery slipped multiple times. Now, a full year later, the first few real live Butterfly Labs boxes are finally being shipped, though no small number (as many as 30) were sent to journalists to review rather than to paying customers.

But when the little black box showed up on my doorstep, I had no idea about the deep and extremely vocal Bitcoin community or the story behind Butterfly Labs. I didn't really even fully understand what the miner did. I simply knew that I wanted to get this thing working and make some money.

Out of the box

The 5GH/s Jalapeño miner is a black rounded cube with a brushed metal finish. The only connectors on the exterior of the device are on the back: a mini-USB port for data and a power plug. Near the power plug are a series of small red LEDs that the device uses to tell you its status, though there was no documentation in the box to explain what the LEDs meant. The front of the cube contains another red LED to indicate power.

There are two sets of vents, one low on the front and the other high on the rear. The device's internal 80 mm fan draws cooler air up from the front through the fins of the large heat sink mounted on the ASIC chip. It expels the now-warm air out through the top vents.

Front view of the Butterfly Labs 5GH/s Jalapeño miner. The understated Butterfly Labs logo is on the top of the device; visible on its front are the air intake vents.

Front view of the Butterfly Labs 5GH/s Jalapeño miner. The understated Butterfly Labs logo is on the top of the device; visible on its front are the air intake vents.

Another look at the front of the Jalapeño. The exterior of the device is dark brushed metal.

Beneath the metal shell, the interior of the miner is dominated by the ASIC's heatsink. The 80 mm fan, removed for this image, sits atop the heatsink.

The rear of the Jalapeño miner, showing the power and mini-USB connectors.

The Jalapeño miner, disassembled.

After I unboxed the thing and took some photos, I was sort of stuck. I had no idea what to do with the little rounded-off cube.

Before I consulted the Internet for documentation, I tried briefly—and in vain—to see if I could make it work on my own. "I am a geek, and I work at Ars Technica, which is a major technology website of some renown," I thought. "I have built Web servers. I use, like, Linux and stuff. How hard can this really be?"

Too hard, apparently. Connecting it via USB to any of the computers I had handy didn't really cause anything to happen. The device showed up on the USB bus and identified itself, but it didn't do anything. I naively wondered if there was some kind of application I needed to download to "log on" to the device to get it mining.

Enlarge/ When connected via USB, the miner shows up as a "BitFORCE SHA256 SC," which is the ASIC identifier.

Lee Hutchinson

I admitted defeat and consulted the Internet. Unfortunately, as I was to quickly learn, I was coming at the miner with a certain set of false assumptions. The BFL miner is a pretty simple device; it doesn't have an "interface" or a console or anything like that at all. It talks via serial-over-USB, and you do need an application running on your computer to actually do anything with it.

In fact, you need several things: a mining application, a "wallet," and a "pool," though the pool is optional.

195 Reader Comments

I thought you could put as many of these boxes as you wanted on a single PC, why a rasberry per unit? seems like one should be enough.

See the picture - that's one raspberry pi managing 4 mining units. I just mentioned the 36 watt total because that's what I found for an example of someone running specifically one of these Jalepenos from BFL and a Pi. So that would be ~6 watts for the Pi plus ~30 per miner. It doesn't have to be one Pi per miner.

1. What was the bandwidth consumption like on your 'net connection?2. What was the hard disk usage like on the computer controlling the miner?

I ask question 2 in particular because when I dabbled with mining ages ago using my graphics card (before giving it up), a fair amount of hard disk space was used up (I think) for transactions. It wouldn't normally be a problem but that machine I used had a small flash drive so one tends to notice more when a few gigs of free space are lost.

If you're doing solo mining, you have to keep a copy of the blockchain on your computer. Last I checked it was up to about 7 GB. But if you're mining as part of a pool, the pool server keeps that info and you don't have to store it yourself at all.

So Lee, are you justing shilling for BL or are you not aware that they have not shipped the bulk of the orders that they received (and were paid for) over a year ago. Also check out the background of the BL founder... that is the real story.

I'm glad they actually shipped you a product to test, but far less sanguine that they took my money long ago and have yet to even send me an email as to when I can expect my miners.

I would strongly caution your readers to expect significant delays in receiving a product that they have to pay for up front.

So Lee, are you justing shilling for BL or are you not aware that they have not shipped the bulk of the orders that they received (and were paid for) over a year ago. Also check out the background of the BL founder... that is the real story.

I'm glad they actually shipped you a product to test, but far less sanguine that they took my money long ago and have yet to even send me an email as to when I can expect my miners.

I would strongly caution your readers to expect significant delays in receiving a product that they have to pay for up front.

Unless the story was updated (rewrote) between your post and mine, they touched on those issues. Granted, they didn't dwell on them, but then the focus of the article wasn't about *that*.

I find this article very interesting as it talks about real life experiences of someone you can trust. I assume the author is honest here and is not being paid or promoted by this company.

But I would appreciate it if the author could share some details about how this works in terms of real life, did he left his laptop connected all the time while it was mining? If yes, that also costs money.

1. Does it need to be connected 24/7 online?

2. How much bandwidth does it require in average to send and receive bits, this means more devices more bandwidth? If yes that should be a price and limiting factor.

3. Is this 110 volts, or can it also work at 220v? What difference would it make? More power or faster calculation?

As far as I see its nice for some small testing but as an investment I would think 100 times before getting it?

Lets see, server hardware depreciation is rated at 50% per year, since this is a small computer, you need to add in hardware depreciation as well (actually I think you would have a hard time selling this again in the future if you don´t want it anymore), not to mention the price of the bitcoin which can drop any day and worst, the hash calculation will increase eventually leaving you with a device that will cost you more to run in power vs making profits. This is inevitable and eventually you will end up losing money. So its not a long term investment.

The biggest fear is quality, not even the best server brands work 24/7 for life. How much do people expect this device to work without breaking? 3 months? 6 months? 1 year? The author broke this device in just a few days...

This, like any system that runs 24/7 will stop working eventually, and then you need to buy another one, which means its not a one time investment device....

As I see the investment is pretty much a very risky one. Not to mention mining bitcoins is getting harder and harder every second, even as I type this article. By the time you receive this device, which could be weeks to month, maybe its not profitable anymore.

This is the biggest reason why this company is selling them, eventually all device you purchased will be paper weights, as running them will cost you more than what it generates in profits.

Also, do not even think about running several of them without getting in power issues and heat. There is a reason why datacenter space cost money, cooling, if you run this at home or office, without mentioning the sound, you would spend allot of money in cooling them unless you want to start a fire.

I find this article very interesting as it talks about real life experiences of someone you can trust. I assume the author is honest here and is not being paid or promoted by this company.

But I would appreciate it if the author could share some details about how this works in terms of real life, did he left his laptop connected all the time while it was mining? If yes, that also costs money.

1. Does it need to be connected 24/7 online?

2. How much bandwidth does it require in average to send and receive bits, this means more devices more bandwidth? If yes that should be a price and limiting factor.

3. Is this 110 volts, or can it also work at 220v? What difference would it make? More power or faster calculation?

1. Yes, the miner needs to be able to receive work to do and send back completed verifications. It needs to be online continually.

2. I honestly didn't look at the bandwidth, because it's minimal. It's moving at most a few KB per validation. This isn't something that's going to be uploading and downloading gigabytes of data.

3. I live in the US, so I don't know. My home is wired for 110v, and so that's how I tested. I'd check with BFL for the specs to see if they support 220. I highly doubt the difference in VAC would make any difference in the miner's speed, since it uses an AC adapter.

The only thing keeping me from buying one of these units is the huge wait time. From the order tracking page, it would seem that they are about a year behind orders. By the time I receive one of these units, there could be so many similar units out there mining coins that they no longer give a decent return.

2. How much bandwidth does it require in average to send and receive bits, this means more devices more bandwidth? If yes that should be a price and limiting factor.

I don't know exactly how much bandwidth it takes, but it isn't much. The actual information being sent is a bunch of block chain headers, which is like 76 bytes roughly once per minute; and the work units being accepted, which is a 4 byte number every like 3 seconds for a single one of these miners on the pool in the screenshot; plus protocol overhead. Not very much bandwidth.

Quote:

3. Is this 110 volts, or can it also work at 220v? What difference would it make? More power or faster calculation?

...You clearly did not study electrical engineering. No difference in power.

But it looks like the power brick accepts both 110V and 220V.

Quote:

Lets see, server hardware depreciation is rated at 50%...

Given the potential rise in hashrates, I think you shouldn't need to worry about normal depreciation. You should treat something like this as a short-term hobby. Join a pool and try to get it to pay off quickly, because this won't double as a high-end gaming card or something after it becomes uneconomical to mine Bitcoins with it.

I'm trying to calculate the value per month, but I don't see a start date nor a hard end date.

Ars, how long did it take you to generate 3BTC?

Sorry, missed responding to this. The first miner took from 9 May to 24 May to get a bit over 2.9 BTC; the second one did about the same from 2 June through 18 June. The miners ran almost continuously; I think both had several periods of a few hours when they weren't operating (lost power at the house at a couple of points from storms, and experimental builds of bfgminer/macminer honked things up a couple of times in the beginning—also, they were obviously unplugged while I was moving them around or photographing/filming them).

So Lee, are you justing shilling for BL or are you not aware that they have not shipped the bulk of the orders that they received (and were paid for) over a year ago. Also check out the background of the BL founder... that is the real story.

I'm glad they actually shipped you a product to test, but far less sanguine that they took my money long ago and have yet to even send me an email as to when I can expect my miners.

I would strongly caution your readers to expect significant delays in receiving a product that they have to pay for up front.

One question I didn't see addressed in the article: how is using one of these boxes better/worse/different than running bitcoin mining software on old PC hardware you have around?

Using an old PC it would probably cost more to power the PC and then you would make in BC. If you purchased a Radeon 7970 you'd process 650 MH/s using 250 watts of power. One of these devices processes 5000 MH/s. That's would require a lot of graphics cards to compete.

Until Bitcoin is officially recognized as a currency, it's not declarable income.Right now Bitcoing is roughly the equivalent to, say, trading cards. You can collect, trade, barter them but you pay no tax until you cash them out.

My question about voltage was if its dual voltage, example, the PS3 is officially rated at 110 (US) but what they don´t say is that its actually multi voltage, I have it running at 220v without problems.

Most US devices, routers, switches, laptop bricks, etc are being made multi voltage this days. Its clear if this comes with a power brick, I assume so, and its probably rated at 110.

The author replied he lost power a few times, so I assume losing internet, or powering it off from time to time, does not affect it, and it would resume where its left off.

I actually I just ordered one after reading this article, it was also not clear the dates he took to discover this bitcoins, but it seems its now in a comment. If this is true, the device is actually pretty good right now.

The problem is when you will actually get it, it said on my order stage it can took 2 months or more until they start shipment and reading their forums it seems some users are waiting since last year. That is not good. Not if you plan to use them as the author commented, because when you receive them, maybe in a couple of months, the whole story could be different again in terms of bitcoins costs and chain difficulty.

I will try to post again when I receive my device, but so far reading their blogs and forums, it seems you would not even get one this year if you order today.

The video in the article was made by the author? Its actually pretty good, I thought it was an advertisement from the company.

As a last point, everyone says its better to join a pool and so did the author. What exactly would be the difference, besides taking longer alone, but I assume you get all bitcoins for yourself as well?

It would be nice to know what is more profitable, if you run 2 of this, one mining alone and another one in the pool, which one would get better results.

One question I didn't see addressed in the article: how is using one of these boxes better/worse/different than running bitcoin mining software on old PC hardware you have around?

Using an old PC it would probably cost more to power the PC and then you would make in BC. If you purchased a Radeon 7970 you'd process 650 MH/s using 250 watts of power. One of these devices processes 5000 MH/s. That's would require a lot of graphics cards to compete.

2, 3 years back, everyone said graphics card where the way to go. Before that it was just a normal computer using CPU, when I started reading about bitcoins, everyone suggested going with GPU processing, gamers card mostly, now it seems GPU is also more or less impossible this days.

Basically, like with most gold rushes, by the time it becomes common knowledge it isn't worth doing anymore. Given:

- The year backorder from Butterfly Labs- How the network increases difficulty as more mining power comes online, and- The mining community will shift from GPUs to ASIC in that year

It seems pretty unlikely that people ordering from BL now will be printing money when they get their box. What makes the Jalapeno profitable is that it runs 50x the efficiency of a (eg. 5850) GPU, which is the current common setup. You may have better luck/profit with a different ASIC miner that you can buy now though.

This all ignores the wild fluctuations in BTC too. We don't know if it will keep going up or burst like a bubble.

Regardless of the practicality of getting into it now, it was an interesting read.

At first I was excited to go buy one, but then I looked at the data and did a little math. With a few assumptions we can predict how much money you might make if you order a new Jalapeno right now (spoiler, raining money doesn't last, expect < 1$/day )

1) If your order is at the bottom of this list: http://bfl.ptz.ro/ then its probably a fair assumption that most or all the people above you also are running their new mining equipment before you are running yours. They just added 408,000 GH/s to the mining network.

2) If you think the order numbers on that order page are legitimate, it suggests there are actually about 64,000 orders outstanding, with less than 10% of customers voluntarily self-reporting. If the 10% self-reporters are a representative sample of what the other 90% are buying, that means its actually 4,080,000 GH/s added capacity to mining network in front of your purchase.

This means by the time you turn your Jalepeno on, even if BFL ships every outstanding order in the next week, the mining network will have 20 times more capacity than it does today. That will rapidly dilute your earning potential by 20x. Instead of Lee's $20, latecomers only get < 1$/day.

Its better than the cost of electricity for now, but if the mining pool keeps growing it might take a long time to earn enough to pay off your new Jalepeno.

I haven't seen this answered anywhere yet (or I haven't looked hard enough...), but what incentive(s) do the various bitcoin exchanges have for exchange this virtual, not-officially-recognized currency, for real hard cash? Other than exchanging bitcoins for real-world currency, bitcoins can't really be used for anything else, can they? For example, let's say I'm in Britain, and I go to a currency exchange to exchange some U.S. dollars for British pounds - the exchange will take my $ and convert it to £ at whatever the current exchange rate is, plus a small commission. Since both $ and £ (and whatever other currency you might be exchanging) are officially recognized currency, there really is no risk for the exchange - money is money regardless of what form it is in. On the other hand, since bitcoins aren't officially recognized, when an exchange turns your bitcoins in to $ or £ or what have you, they suddenly have a whole ton of bitcoins that are essentially worthless... In other words, I'm just confused by what you can do with bitcoins outside of exchanging them for real currency. And if you can't really use them for anything else, why would any company exchange something that is essentially worthless for money?

At first I was excited to go buy one, but then I looked at the data and did a little math. With a few assumptions we can predict how much money you might make if you order a new Jalapeno right now (spoiler, raining money doesn't last, expect < 1$/day )

1) If your order is at the bottom of this list: http://bfl.ptz.ro/ then its probably a fair assumption that most or all the people above you also are running their new mining equipment before you are running yours. They just added 408,000 GH/s to the mining network.

2) If you think the order numbers on that order page are legitimate, it suggests there are actually about 64,000 orders outstanding, with less than 10% of customers voluntarily self-reporting. If the 10% self-reporters are a representative sample of what the other 90% are buying, that means its actually 4,080,000 GH/s added capacity to mining network in front of your purchase.

This means by the time you turn your Jalepeno on, even if BFL ships every outstanding order in the next week, the mining network will have 20 times more capacity than it does today. That will rapidly dilute your earning potential by 20x. Instead of Lee's $20, latecomers only get < 1$/day.

Its better than the cost of electricity for now, but if the mining pool keeps growing it might take a long time to earn enough to pay off your new Jalepeno.

You made a great point, by the time most people connect their devices online, they will be losing money instead of earning.

Then it will be the end of ButterFlyLab as well, as nobody will order anything from them again, without profits...

The only way this could ever work, is if they ship most of the orders at the same time, or very fast, this people would make money to buy even more devices. Otherwise you are just kicked out on all people that ordered before you did.

Also, lets not forget this devices are junk if they don´t generate bitcoins, they are literately expensive paperweights.

It seems not a single person that ordered this years receive one. So this means I, that ordered one as hobby today, will probably get my next year. By them, it would take me probably 1 year to generate one single bitcoin.

What is more worrying, is that they say no refunds now that they are shipping devices. How would that be even legal? PayPal would allow you to make a dispute if you paid for something and never received it. Waiting 1, 2 or even 3 months is one thing, waiting 1 year? They will probably be out of business by then when all this people connected their devices making the whole hashing so hard, even their own products will be useless by them.

I realized a few more assumptions and fun math might give a little better explanation for BFL business strategy:

If you believe http://bfl.ptz.ro/ and that the self reported orders only account for 10% of the actual orders (note the density of the order numbers), and that self-reported order are representative of the others then:BFL has 86M in sales

The mining algorithm difficulty is self-adjusting so that it pays out 25 BTC per 10min, or about 360k/day at 100$:1BTC exchange rate.

We have no way to know BFL's cost, but assume they are enjoying their early to market position with a 50% profit margin on the hardware. Someone who knows ASICs might be able to make a better estimate. They could either:

1) Spend about 4M to buy their own hardware at cost to take a 50% share in the total bitcoin mining market. Then hope they can hold that relative share position for 8+ months of mining.2) Sell 86M of hardware to miners in advance.

Both options make them the same 43M of profit if they can do it, but option #2:a) gives all risk of BTC fluctuation to the minersb) gives all risk of production delay to the miners (the hardware would no longer be competitive and produce very little BTC)c) gets huge amounts of sales money into the company coffers up-front, thus requiring limited venture capital (less equity => better ROI)d) doesn't require running a data-center (less equity => better ROI)

BFL delivered the goods early enough that anyone ordering big quantities early in line might be able to make very good money, but I am guessing no miner will make as much money as BFL will selling the equipment.

What is wonderful about this is the process of wealth creation. Think about it for a moment. Anyone, anywhere in the world, can put together machines which basically print money. They print more money than they cost to buy and run.

Well, this is wonderful. We can all get rich and buy whatever we want with the money. What could possibly go wrong?

All we have to do is optimize the machines. Which this helpful company has helpfully done for us. Obviously these machines do incredibly productive and useful work and that is why their acquisition, ownership and use is being rewarded by the market in this incredible way.

What is happening is that the world has discovered the extraordinary value which the market attaches to this particular form of cracking. Who would have thought it? It seems to do so little of usable value to anyone. But I guess it must have some value or people would not pay to have it done.....

Perhaps I missed it but why are miners being paid? Serious number crunching accomplishes a task but what is the end result used for? I must not have enough knowledge about bitcoin to understand what's. going on here. (Time to go google the subject)

I think this is a missed opportunity for anyone who tries to join the fun now by signing up for the waiting list.

It's essentially a device for printing money. Just doesn't seem sustainable from an economic perspective, especially as more and more people start doing it. For those that pre-ordered and are able to extract several hundred or even thousands of $'s before the great collapse, it was a great short-term investment though.

Doesn't the EFF accept bitcoin donations? I realize the value to the story, but it is technically incorrect to imply the only way to donate your bitcoins is through an arduous currency conversion. The true value of bitcoin is that one day it could become easier than cash to spend online. One day. Some enterprising genius needs to figure out a way to obfuscate a 32 character cryptographic address, that's not exactly user friendly.

The problem with overclocking is that if you have to increase voltage, you get a non-linear increase in power draw, i.e. the power efficiency is guaranteed to go down, which is the primary factor here. On the other hand, you have to fit the "profit" curve to the incredibly rapid depreciation of the miner's value as a miner, so there is that, too.

Overclocking means you run the processor clock faster than it's specified to run. This causes a nearly linear increase in power consumption since power consumption in most digital circuits is proportional clock rate plus a fixed standby power. Depending on the device's design, it may or may not be possible to overclock it -- one or more components may already be running at the maximum rate at which it works reliably.

If the device is well designed, it will go into thermal throttling if you run it too hot. Depending on your environmental conditions, it may already be operating in that condition and the best way of increasing processor throughput (and bitcoin output) would be to provide it with better cooling. For example, modifying the heat sink or ducting cooler air would cool the processor and allow it to run longer without throttling.

not complicated at all. you received cash, thats income, all other questions stop right there.

you can only debate on how easy it is to track and if the government will find out.

You could hold the bitcoins instead of selling them. In that case, you haven't realized the income and may not need to declare the income (this year). I'd consult a tax lawyer before you decided whether and how to report that on your tax forms though. Also, it may be a risky investment because you don't know whether the value of mined bitcoins will increase or decrease over time.

Lee Hutchinson / Lee is the Senior Reviews Editor at Ars and is responsible for the product news and reviews section. He also knows stuff about enterprise storage, security, and manned space flight. Lee is based in Houston, TX.